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New wave of renters challenges sterotypes

New wave of renters challenges stereotypes

By Elise Stolte, Edmonton Journal

edmontonjournal.com

EDMONTON - Simon Yackulic is a renter. He’s also involved in the Oliver Community League.

In fact, most of the league’s executive challenge the stereotype that renters don’t get involved in their neighbourhoods. Of 14 eating pizza around flimsy tables at their recent board meeting, 10 rent rather than own their condos.

At public hearings and open houses, city councillors and developers frequently hear concerns that an increase in renters will lead to rundown neighbourhoods with no one to speak up for the common good.

But demographics are changing. Rates of home ownership are falling. Renters frustrated with negative labels, say they’re eager for the cultural shift that could bring.

In high-density Oliver, 67 per cent of people rent and nearly half are in their 20s or 30s.

I liked O'Byrne's comments about home ownership, specifically how over the long term home ownership is actually a terrible "investment" because it pretty much parallels inflation, if you ignore costs. That needs to become general knowledge. With what's gone on with our housing market in Edmonton, Alberta and Canada in the past 20 years, it has really skewed people's views on home ownership in to thinking that it's such a wonderful investment that only ever goes up.

That being said, in my personal experience living in two condo buildings, there is absolutely no question that the biggest issues either condo board has had to deal with related to problem renters. I don't think that a large number of renters can negatively impact an actual neighborhood or community. But individual renters can certainly cause problems for particular buildings.

^ there were some awful renters in our condo bldg in McKay. But there were a few awful owners too

I find Simon's comments a gross generalization, and obviously made to quantify whatever's trying to be proven here. Renting makes sense for some folks, owning makes sense or some

I just turned 40, have one house paid off and another just about there, and have good positive cash flow out of the rental house. Sure there may have been another way to secure my investment portfolio but in my case real estate has been a very good investment

Putting $1,000+ / month into someone else's hands is a poor investment too. At least with owning property you are building up equity. Depending on how large your mortgage is, PIT payments can easily be cheaper than rent.

Having said that, renting can be the right way to go if your circumstances are such that you don't want or need the hassle of ownership. If you have paid off your property and want to maximize income from the equity you have built up, you can sell, and have the proceeds work for you and pay your rent... Renters like that would be much preferred over the stereotypical 20-something partyers...

I liked O'Byrne's comments about home ownership, specifically how over the long term home ownership is actually a terrible "investment" because it pretty much parallels inflation, if you ignore costs.

Its not really true though because it ignores the power of financial leverage, which is easier for property than for anything else as its hard to borrow to invest in shares or similar. For example, my current place, I put 30k down on it in 2011. Now, in 2015, that 30k is worth more than 100k. That's a pretty amazing return, and most home owners get similar, all because they are using debt to fund most of the acquisition cost. When you rent, you are just paying off someone else's mortgage, and losing the power of that leverage.

Putting $1,000+ / month into someone else's hands is a poor investment too. At least with owning property you are building up equity. Depending on how large your mortgage is, PIT payments can easily be cheaper than rent.

When we had a mortgage, we were easily putting >1000/mo into other people's hands in the form of mortgage interest, property taxes, property insurance, and maintenance.

In most markets these days, the math says renting and investing the difference will pay off in the long run. Unfortunately, almost nobody has the drive to invest the difference.

I liked O'Byrne's comments about home ownership, specifically how over the long term home ownership is actually a terrible "investment" because it pretty much parallels inflation, if you ignore costs.

Its not really true though because it ignores the power of financial leverage, which is easier for property than for anything else as its hard to borrow to invest in shares or similar. For example, my current place, I put 30k down on it in 2011. Now, in 2015, that 30k is worth more than 100k. That's a pretty amazing return, and most home owners get similar, all because they are using debt to fund most of the acquisition cost. When you rent, you are just paying off someone else's mortgage, and losing the power of that leverage.

Leverage is a great story when the markets are going up. When they go down substantially (something that the majority of home owners posting here have never experienced), the tables turn quickly.

^true, but over the long term property tends to increase at a higher rate than interest, so the leverage works quite well. I don't see point in paying rent for years to pay off other peoples mortgages, you end up, with literally nothing, whereas I end up, with a home (regardless of whether it goes up, or down, in value). The only thing I lose is the downpayment (and compounded investment returns on that), but provided you keep the downpayment small, that will be covered by the mortgage payments reducing a mortgage, versus renting reducing some elses mortgage. The only time renting makes sense, I think, is if the market is insanely over-valued, or if you need the flexibility to move on a dime. For example, I'd be nervous about buying a single family home in Vancouver, I think a condo there would be fine though.

That being said, in my personal experience living in two condo buildings, there is absolutely no question that the biggest issues either condo board has had to deal with related to problem renters. I don't think that a large number of renters can negatively impact an actual neighborhood or community. But individual renters can certainly cause problems for particular buildings.

I agree mostly with this, but I would put a caveat on this and say that most renter issues are minor day-to-day annoyances that can be dealt with. We've had some absolutely terrible owners that have created years of grief and you are basically 'married' to. So it can go both ways.

Putting $1,000+ / month into someone else's hands is a poor investment too. At least with owning property you are building up equity. Depending on how large your mortgage is, PIT payments can easily be cheaper than rent.

When we had a mortgage, we were easily putting >1000/mo into other people's hands in the form of mortgage interest, property taxes, property insurance, and maintenance.

In most markets these days, the math says renting and investing the difference will pay off in the long run. Unfortunately, almost nobody has the drive to invest the difference.

Yup, when looked at objectively, the amount of sunk costs between owning and renting is not dramatically different. But being forced to pay down equity in a mortgage is a lot easier for most people than "investing the difference."

That said, as an "investment", home ownership has terrible pitfalls: high leverage, high maintenance, non-liquid, penalties to break mortgage early, substantial fees to sell asset (commission, lawyer fees, etc). It is also extremely rare for people to capitalize on market changes. That would involve someone cashing out during a boom (either downgrade or rent) and then buying again during the next recession. Most home owners upgrade during booms and downgrade during recessions which is counter to sound investment strategy.

I timed the market just fine when I waited for the downturn in the economy in the 80's to crash local housing prices. Worked fine.

It will work again.

Housing prices are high in relation to current economic performance in the region. Prices are mostly holding but due for correction over the next couple years.

In anycase Edmonton housing prices are bloated for what they are, winter city on the prairies where big utility bills are also on the menu.

From that perspective if I was young today I would be a renter, not a buyer, in this current market and be in a holding pattern waiting to see what will occur. Sucks for young people as they don't get the benefits of eventual equity but how much equity is there if housing prices decrease even 10% over the next couple years?

In some times and places buyers can be perceived as more committed, and focused, in their life path. I wouldn't say that is the case at this moment and it could well be that renters are presently invoking the most informed decision in this current market. This is an atypical comment for me but this just isn't a buyers market. So why buy?

"if god exists and he allowed that to happen, then its better that he doesn't exist"

I timed the market just fine when I waited for the downturn in the economy in the 80's to crash local housing prices. Worked fine.

It will work again.

Sure, it might. Until it doesn't. People have been told for the past 5-7 years that the housing market is ready for a crash any day now, and that they should wait before jumping in to the housing market because they'll get in cheaper if they do. For many people that wait has been hugely detrimental as real estate prices have continued to appreciate. The housing market is certainly unique from other types of investment, but overall the academic case is very much against market timing in general.

In anycase Edmonton housing prices are bloated for what they are, winter city on the prairies where big utility bills are also on the menu.

From that perspective if I was young today I would be a renter, not a buyer, in this current market and be in a holding pattern waiting to see what will occur.

I wouldn't, I'd be a buyer. Worst case is that pricing drops for a half dozen years or so, just hang onto the property and it will come back. As to the "Edmonton is overpriced" - I think compared to other international cities, it has a long way to go. The average home price is still very reasonable compared to the median family income (almost 100k).

In anycase Edmonton housing prices are bloated for what they are, winter city on the prairies where big utility bills are also on the menu.

From that perspective if I was young today I would be a renter, not a buyer, in this current market and be in a holding pattern waiting to see what will occur.

I wouldn't, I'd be a buyer. Worst case is that pricing drops for a half dozen years or so, just hang onto the property and it will come back. As to the "Edmonton is overpriced" - I think compared to other international cities, it has a long way to go. The average home price is still very reasonable compared to the median family income (almost 100k).

In another thread you are complaining vociferously about the price of beef saying its unaffordable. However when discussing real estate prices, which are severely bloated, and which require the average person to pay most of their lives for a property, you're saying its "still very reasonable"

I think a lot of prices world wide are inflated right now. Probably the biggest result we see from the fall of the iron curtain and Russia/China entering world markets and becoming major purchasers of Real Estate the world over. That's probably got a lot to do with the rampant inflation seen in some cities, doesn't explain ours but the deflated Oil and Gas economy has more impact traditionally on ours.
In anycase I doubt we see another price bump either local or worldwide quite like we've seen in the last decade or two.

"if god exists and he allowed that to happen, then its better that he doesn't exist"

The difference is you get a loan at 3% to buy a house, but a loan to buy a steak runs you 18% or more. Remove the subsidized loan factor and houses would be right where they should be.

Except that you of course don't need a loan to buy a steak while you'll be paying the house loan the majority of the rest of your life. With even at modest interest rates paying back a lot of interest and very little premium early in a big 400K mortgage.

Plus if its a Condo, and more and more people for some reason are going that route, you're paying interest, condo fees and next to no premium and grossly overpaying for what a condo is worth. Really its a poor deal to buy a Condo here now especially.

"if god exists and he allowed that to happen, then its better that he doesn't exist"

The difference is you get a loan at 3% to buy a house, but a loan to buy a steak runs you 18% or more. Remove the subsidized loan factor and houses would be right where they should be.

Except that you of course don't need a loan to buy a steak while you'll be paying the house loan the majority of the rest of your life. With even at modest interest rates paying back a lot of interest and very little premium early in a big 400K mortgage.

Plus if its a Condo, and more and more people for some reason are going that route, you're paying interest, condo fees and next to no premium and grossly overpaying for what a condo is worth. Really its a poor deal to buy a Condo here now especially.

There is also far less opportunity to build "sweat equity" in most condos. They are an inferior investment if you are looking to build value in your home.

The difference is you get a loan at 3% to buy a house, but a loan to buy a steak runs you 18% or more. Remove the subsidized loan factor and houses would be right where they should be.

Except that you of course don't need a loan to buy a steak while you'll be paying the house loan the majority of the rest of your life. With even at modest interest rates paying back a lot of interest and very little premium early in a big 400K mortgage.

Plus if its a Condo, and more and more people for some reason are going that route, you're paying interest, condo fees and next to no premium and grossly overpaying for what a condo is worth. Really its a poor deal to buy a Condo here now especially.

There is also far less opportunity to build "sweat equity" in most condos. They are an inferior investment if you are looking to build value in your home.

Exactly. Who knows why they are holding value better than houses in this market. Really I would never buy a Condo for what they are priced at here. The only thing I could attribute it to is sheer laziness. Somebody that wants to pay to the hilt just so they don't have to bother doing anything. Except paying a hell of a lot more than they should.

"if god exists and he allowed that to happen, then its better that he doesn't exist"

Putting $1,000+ / month into someone else's hands is a poor investment too. At least with owning property you are building up equity. Depending on how large your mortgage is, PIT payments can easily be cheaper than rent.

When we had a mortgage, we were easily putting >1000/mo into other people's hands in the form of mortgage interest, property taxes, property insurance, and maintenance.

In most markets these days, the math says renting and investing the difference will pay off in the long run. Unfortunately, almost nobody has the drive to invest the difference.

Yup, when looked at objectively, the amount of sunk costs between owning and renting is not dramatically different. But being forced to pay down equity in a mortgage is a lot easier for most people than "investing the difference."

That said, as an "investment", home ownership has terrible pitfalls: high leverage, high maintenance, non-liquid, penalties to break mortgage early, substantial fees to sell asset (commission, lawyer fees, etc). It is also extremely rare for people to capitalize on market changes. That would involve someone cashing out during a boom (either downgrade or rent) and then buying again during the next recession. Most home owners upgrade during booms and downgrade during recessions which is counter to sound investment strategy.

YMMV...

The properties I've owned have been paid off quickly and appreciated nicely in value. Choosing a property wisely will avoid added costs. Maintenance and improvements help substantially with resale, so can't be considered wasted spending. Purchasing within your means is also important. I have never had more than an $80k mortgage and have paid them off quickly, minimizing interest payments (which is just as bad as paying rent, imho). Folks that saddle themselves with $300k mortgages are shooting themselves in the foot.